Fair Trading NSW assistant commissioner John Tansey said the reform package was the result of considerable consultation with stakeholders.

"It is trying to particularly look at reducing disputes around issues that arise when they are doing building work, and giving all parties greater clarity about their rights and obligations," he said.

Progress payments, a standard part of most agreements, must now be included in a schedule as part of any building contract.

"Your control over the release of progress payments is one of the main safeguards a consumer has to make sure they are getting what they paid for, and they only hand over money when they have got what they paid for," Mr Tansey said.

"And it's equally important to ensure that consumers know when they will be due to pay builders, because that money is the lifeblood of the builder's project, and their business."

But Michelle Ericoli, a lawyer at the Home Building Advocacy Service, which represents home owners in disputes, had "grave concerns" the reforms reduced options available to people complaining of poor building work.

The definition of shoddy work which attracts the maximum six-year warranty has been changed from "structural" to "major" defects, which Ms Ericoli said would disadvantage home owners.

"The bottom line is that the change to the definition from structural defect to major defect will result in a huge loss for the consumer," she said.

"When problems start to appear and are tested under these new laws, the everyday person will be surprised by how much they are disadvantaged."

Mr Tansey, who was acting in the role of Fair Trading Commissioner when he spoke to the Mercury this week, said the word "structural" could have a different meaning in building, so "major" work was clearer.

"It acknowledges for the first time that there might be elements of a building that are critical to the use and the habitation of that building that aren't structural in and of themselves, but are critical to the building."

Ms Ericoli was pleased with tougher regulations to stop builders who had gone bust re-registering a different company - a practice known as "phoenixing".

Other changes include on-the-spot fines for builders who refuse to comply with rectification orders, and the potential for prison terms for repeat offenders who practice unlicensed.

The reforms will make life harder for owner-builders, who will now be unable to obtain home warranty insurance when they wish to sell their home.

Owner-builders will also not be allowed to build a second house on a dual-occupancy or subdivided block, on top of being only able to owner-build one house each five years.

Mr Tansey said owner-builder provisions were never intended to cover people acting as "developers" and building a second house to sell.